Out for Revenge? - Businessmen fear that Venezuela’s president is aiming to cripple the private sector

www.msnbc.com By Phil Gunson NEWSWEEK INTERNATIONAL

Feb. 24 issue — Under the heat of the mid-day sun, a strong smell of urine rises from the sidewalks of the once fashionable Sabana Grande district of Caracas. Street stalls selling pirated CDs assail the eardrums with clashing rhythms. Cafes where the middle-class intelligentsia used to gather have been swallowed up by a teeming bazaar of buhoneros —local slang for the capital’s flourishing street traders.         MORE THAN 5 million Venezuelans—over half the work force—scrape by in what is euphemistically known as the “informal” economy. Under leftist President Hugo Chavez, for the first time in modern Venezuelan history, that figure exceeds the number earning a formal wage. “The feeling we have,” says one business leader of Chavez, “is that this man wants to do away with the private sector altogether.”         That feeling has grown more palpable now that Chavez appears to have outlasted the two-month strike against his rule. Led by businesses and unions, the strikes had crippled the oil industry and brought the economy to a crawl, yet failed to push Chavez into early elections. Now strikers are heading back to work fearful that the president’s latest moves reflect a desire to take revenge against business as a whole. On Jan. 21 the government slapped a temporary ban on foreign-currency trading, pending the introduction of exchange controls. These are ostensibly aimed at husbanding the Central Bank’s dwindling currency supplies, but the controls will be administered by Chavez loyalists, who will have the power to choke the private sector if they choose. “Not one dollar for the coup plotters!” proclaims the president, who lambastes his opponents as “fascist conspirators” and “oligarchs” upset over a loss of wealth and privileges.         In charge of determining who gets the dollars will be a committee headed by a onetime Army officer who took part in Chavez’s failed 1992 coup attempt. Another member, former vice president Adina Bastidas, has been nicknamed “La Talibana” for her radical devotion to the Chavez cause. If opposition economists are to be believed, a stroll through Sabana Grande is a glimpse into the future of the Venezuelan economy, which is headed for a crash that could dwarf even that of Argentina’s. “We’re expecting the economy to shrink by between 17 and 20-odd percent in 2003,” says businessman and economic consultant Pedro Palma. “The pessimists are talking of around 25 percent. That’s a dramatic collapse, especially coming on top of a 9 percent fall last year.” The secretary-general of the Organization of American States, Cesar Gaviria, says the Americas have never seen a sharper economic contraction, “not even during a civil war.”         When Chavez came to power in early 1999, there were more than 11,000 private industrial firms in Venezuela. By the end of last year, more than 5,000 had gone bust, and hundreds, maybe thousands, more are on the brink. “We’ve always been on the defensive, because this government’s policies are not pro-business,” says the general manager of one medium-size company that makes cartons and packaging for the food industry. The manager, along with the company’s main shareholder, spoke to NEWSWEEK on condition of anonymity. “If you mention the company, I can’t speak frankly,” the owner said. “We’re living in a dictatorship.”         Their situation is typical of the crisis facing Venezuelan industry. The packaging company has 300 employees, who came back to work in early February, after strike leaders ended the walkout in all industries except oil. But production depends heavily on imported plastics and resins, which the firm cannot obtain without foreign currency. They bought up all the stocks they could find after the strike, and are operating at 80 percent capacity. “In 45 days it’s over,” the manager says. “There will be no more raw material.”         The strike turned Venezuela from a major oil exporter into an importer, and lines at filling stations sometimes stretch for kilometers, so distribution is a nightmare. One of the company’s drying ovens needs an overhaul, but the U.S. technician who is scheduled to perform it refuses to come to Caracas until the U.S. Embassy lifts its travel advisory. Obtaining replacement parts from abroad could take months because of exchange-control delays. If the company shuts down, its clients can’t package their food. With glass, plastics and bottle tops also in critically short supply, the packaging problem is proving a real obstacle to economic revival.         The private sector is bracing for worse. The unemployment rate was 16 percent before the strike and is expected to rise to 30 percent by midyear. Real wages are shrinking under the weight of rising inflation, expected to hit 50 percent this summer. Businesses expect a sharp fall in consumption. “Looking at what’s coming,” says the manager. “If this was the U.S., I’d have to fire 20 percent of the work force.” But the government has decreed a “temporary” ban on dismissals, which is renewed each time it expires.         The Chavez administration denies it has a plan to squeeze private business. Guillermo Garcia Ponce, an elderly former Stalinist, is coordinator of the president’s Political Command of the Revolution, supposedly an advisory body—though Chavez himself chairs it. Garcia Ponce dismisses the apocalyptic talk as mere propaganda. “Maybe a family of recent arrivals might be frightened by talk of revolution,” he says. “But all governments in Venezuela talk of revolution. We’ve been talking about a revolution since 1810—but this is the first time the government is not in the hands of the traditional classes.” Though a lifelong communist, Garcia Ponce says Chavez merely wants to see an improved version of capitalism, “not subject to globalization or U.S. interests,” and that he has no intention of shutting down the private sector. “Chavez hasn’t closed down a single business,” he argues. “The owners themselves shut them down.”         Planned or not, the deindustrialization of Venezuela is proceeding apace. According to the national confederation of industrialists, Conindustria, foreign private investment dropped 90 percent last year. And even before the strike 70 percent of industrial companies foresaw no growth or investment in 2003. Says Conindustria executive chairman Juan Francisco Mejia, “investment of any kind, national or foreign, will be zero.”         Back in Sabana Grande, the buhoneros, too, are gloomy. The government has set the legal—and unobtainable—greenback at 1,600 bolivares, but on the black market it’s at least a third higher. “Everything’s more expensive now,” says Teresa Perez, 45, who lost her job as a business administrator and now sells imported perfumes. “We survive, but only just.” One stall over, Xiomara Suarez, 43, is doing a bit better selling packets of incense and an after-bath potion that promises to unlock the “secrets of prosperity.” Suarez says she believes in its powers: “You put it on and go out to look for work.” Its name? The Magic of the Dollar.